IRS Whistleblower Program: Successes and Shortfalls

The IRS Whistleblower Office was established in 2007 pursuant to the Tax Relief and Health Care Act of 2006 (the “Act”). The Act amended preexisting IRS whistleblower laws in order to encourage individuals with knowledge of significant tax noncompliance to provide information to the IRS. In part, the Act accomplished this goal by increasing the whistleblower award threshold from 15 percent to 30 percent of the proceeds from resulting IRS enforcement actions.

Since its formation, the IRS Whistleblower Office has triggered thousands of whistleblowers to report hundreds of millions of dollars in suspected tax compliance issues. In 2011 alone, the IRS received 314 whistleblower claims, identifying 732 potentially noncompliant taxpayers. To put these claim numbers in perspective, in order to qualify for the program, the amounts in dispute for each whistleblower claim must exceed $2,000,000.

Although the Act improved upon the IRS’s prior whistleblower program, the IRS has fallen under scrutiny for failing to timely process claims as well as for weaknesses in its claims processing system. The program’s failures are reflective in the fact that whistleblower reporting was on the decline in 2011. For example, in 2011, the IRS collected roughly $48 million through the whistleblower program, in comparison to roughly $464 million in 2010. Amid concerns that program inefficiencies are driving whistleblowers away, the IRS is currently undergoing a comprehensive review and retooling of the program’s operating guidelines and procedures.

Not only is maintaining IRS whistleblowers’ confidence important for enforcing IRS compliance, but it is also important given the risks whistleblowers take when reporting compliance issues. Unlike other laws that encourage whistleblowing, the IRS’s legal framework does not prohibit taxpayers from retaliating against whistleblowers. Although the IRS is committed to protecting whistleblowers’ identities, the IRS may have to identify a whistleblower if they are an essential witness in a proceeding or if a court orders them to do so. In these instances, the taxpayer may retaliate against the whistleblower in the workplace, threaten physical harm, or damage the whistleblower’s economic interests. When a taxpayer retaliates against a whistleblower, the whistleblower may have recourse under state law, but they do not have recourse for retaliation under federal law. For more information on IRS whistleblower practices and rewards in California and for a free and confidential consultation with a Whistleblower Attorney in California, contact us.